Calculating the PIA

WOMEN’S HISTORY MONTH (Photo credit: mademoiselle louise)

WOMEN’S HISTORY MONTH (Photo credit: mademoiselle louise)

In determining your retirement benefits from Social Security, as well as those of any dependents who may claim benefits based upon your record, the Primary Insurance Amount, or PIA, is an important factor.  The PIA is the amount of benefit that you would receive if you began receiving benefits at exactly your Full Retirement Age, or FRA. (see this article for information about determining your FRA).

The PIA is only one of the factors used in determining the actual amount of your retirement benefit – the other factor being the date (or rather your age) when you elect to begin receiving retirement benefits.

So, how is PIA calculated?

There are several factors that go into the calculation of the PIA.  You start off with your Average Indexed Monthly Earnings (AIME – which we defined in this article about the AIME).  Then, we take into account the bend points for the current year.  For 2016 the bend points are $856 and $5,157.  Here’s the calculation:

• the first $856 of your AIME is multiplied by 90%
• the amount between $856 and $5,157 is multiplied by 32%
• any amount in excess of $5,157 is multiplied by 15%

Note: these are the figures for 2016.  Each year the bend points are increased slightly (or most years they are), and so the PIA calculation may change.

So let’s work through a couple of examples:

Our first retiree is age 62 in 2016, and is hoping to begin taking Social Security benefits immediately upon eligibility – to get what’s coming to her.  Her AIME has been calculated as $6,500.  Applying the formula, we get the following:

• first bend point: $770.40 ($856 * 90%)
• second bend point: $1,376.32 ($5,157 – $856 = $4,301 * 32%)
• excess: $201.45 ($6,500 – $5,157 = $1,343 * 15%)
• For a total PIA of: $2,348.10 ($770.40 + $1,376.32 + $201.45 = $2,348.17 rounded down)

The second example retiree also is age 62 in 2016.  His AIME has been calculated as $4,000.  Applying the formula:

• first bend point: $770.40
• second bend point: $1,006.08 ($4,000 – $856 = $3,144 * 32%)
• excess: $0
• For a total PIA of: $1,776.40 ($770.40 + $1,006.08 = $1,776.48 rounded down)

You should note that the PIA is always rounded down to the next multiple of $0.10.

And that’s it.  As mentioned, your PIA is the basis for many of your benefit calculations. The bend point amounts also control the amount of reduction the the Windfall Elimination Provision can have – for 2016 the maximum reduction for WEP is $428 per month.